This is a blog that I started in october 2010, mainly for discussing my ideas on the economy, taxation and politics. Please add comments - I'll do my best to reply. If you are new, I would recommend watching one of my YouTube presentations (in French or English). You can download a fully indexed pdf version (over 600 pages) here.

15 Apr 2012

The UK financial sector not only adds no value, it doesn't even count as a service industry

Following up from yesterday's post in which I asked whether we could get an estimate of the level of transactions in the real economy by looking at the level of turnover, I found an interesting website where the Office for National Statistics gives figures for turnover for the UK manufacturing and services sector. You can download an excel file which gives a breakdown of turnover for every year since 2007, and also provides monthly updates.

Here are the numbers separately for manufacturing and services.

The total is a bit over £2 trillion, with just over 20% due to manufactuing, and nearly 80% from the service industries.

So, lets assume that each company which has a given amount of turnover (revenue) also spends roughly the same amount. This would mean that we could count on at least £4 trillion of transactions.

Of course, this is a lot less that the £1760 trillion that I get by looking at the details. So where are the missing transactions? Well, very conveniently, the Excel file from the Office for National Statistics gives a complete breakdown. It's not easy to use, because the data is all on different sheets, and formatted in a horribly complicated way. But, you'll be happy to know that I have extracted all the useful stuff and put it into a readable form.

First, here is the breakdown for manufacturing for 2007-2011. I've added an extra column where you can see the percentage for each area.

It's nice to see that manufacturing motor vehicles still generates nearly £53 billion in turnover (12.3% of the total), and other areas like Machinery and Equipment (8.85%), petrochemicals (6.84%) and fabricated metal products (6.85%) are still managing to generate revenue... UK manufacturing hasn't completely disappeared - yet.

But the real surprise was the data for the services industries. Here they are.

The real whopper here is clearly Wholesale trade services (excluding motor vehicles) that generates over £795 billion (48% of the total). I guess that must be all those flat screen TVs that the UK imports (amongst other things). It's a shame that they don't give a breakdown of this.

But there is one component that I really expected to find and didn't. Where is the financial sector?? Isn't that supposed to be the UK's big breadwinner? I can't believe that it is covered by "Accounting, bookkeeping and auditing" which generates a piffling £22 billion (1.35%). Nor by "Office adminstration & support & other support services", which only manages about £39 billion (2.35%). Nor by "Legal activities" which only generates £26 billion (1.58%).

Why on earth isn't there a line for "Banking"? Why don't we find the trillions handled by NYSE Liffe, CLS Bank, LCH.Clearnet Ltd, EuroClear UK, the London Stock Exchange, the London Metal Exchange,etc etc etc?

I was aware that the financial sector is largely exempt from VAT (Value-Added Tax) - presumably because everyone knows that it doesn't add any value. But the idea that the financial sector doesn't even get included in list of areas in the economy that provide a Service is news to me!

Can the UK government explain to the rest of us why every business in the UK is obliged to report figures for turnover except the financial sector? Could it possibly be that they have been given a licence to do what they like with no regulation whatsoever?